Aug. 22 (Bloomberg) -- Google Inc. and Yahoo! Inc., the most popular search engines, face a review from Canada's competition watchdog of their proposed advertising partnership.

``It's a sizeable agreement and we're going to take a close, hard look at it,'' Anthony Durocher, a senior competition law officer with the Competition Bureau, said today in an interview.

The companies, which also are trying to persuade U.S. regulators to approve the agreement, want to start the partnership by October. Google told U.S. lawmakers last month that the advertising deal will expand competition without increasing its share of search traffic. Yahoo ranks a distant second to Google in Internet queries and search ads.

``The market dynamics are roughly the same'' in Canada as in the U.S., said Kevin Restivo, an analyst with IDC in Toronto. So if the partnership is approved in the U.S., there would be little reason for Canadian regulators to block it, he said.

Google, based in Mountain View, California, had 61.9 percent of U.S. Internet queries in July, topping Yahoo's 20.5 percent and Microsoft Corp.'s 8.9 percent, according to research firm ComScore Inc.

Microsoft accounts for more of the market in Canada, so the threat to competition may not be as strong in that country, Restivo said. ``Microsoft does better here than Yahoo in all facets of the business,'' he said.

Spurning Microsoft

Yahoo announced the deal with Google on June 17, after rebuffing acquisition bids from Microsoft, which claims the agreement will reduce competition in Internet advertising and raise prices.

Google climbed $4.06 to $490.59 at 4 p.m. New York time in Nasdaq Stock Market trading. Sunnyvale, California's Yahoo rose 42 cents to $19.53, while Redmond, Washington-based Microsoft gained 66 cents to $27.84.

U.S. Senate Judiciary Chairman Patrick Leahy, a Vermont Democrat, said last month that the deal raises privacy concerns, because one company could amass ``vast amounts'' of personal data.

Microsoft, the world's largest software maker, had sought to acquire Yahoo to help win a bigger share of Internet advertising, a market that may reach $65 billion this year, according to IDC.

Yahoo expects the Google partnership to generate as much as $450 million in sales annually.

To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net

Last Updated: August 22, 2008 16:30 EDT